Management: A Dynamic Force in a Changing Industry

groups being observed. The researchers discovered that social pressures in the work group were at least as important as pay in determining level of effort and output of workers.

This work was begun under the direction of Elton Mayo and carried out largely by Fritz Roethlisberger and W. J. Dickson, all famous names in management thought. It set in motion a process of research and controversy that continues to be a lively area of debate among management theorists as well as managers and supervisors. Although there is wide disagreement over exactly how to interpret and put into practice these findings about human relations (or, as it has more recently been termed, organizational behavior), few would argue today that pay is all that counts. Most managers are much more sensitive to the human and social needs of workers than they were just a few years ago.

IMPLICATIONS FOR THE MODERN HOSPITALITY MANAGER

We have noted the influence of the early theorists Taylor, Fayol, and Mayo, and the practical uses to which their theories are put to this day. By way of a summary, we should note that the basic issues in hospitality management for the foreseeable future are embodied in the work of these three men and those who followed them. From Taylor, we get a concern with efficient production methods. Fayol set us to thinking about the design of the working organization. And Mayo and his followers alerted us to a concern for the worker as an individual and as a social being. Students of the hospitality industry should be able to observe the effect of each of these researchers’ work on how today’s hospitality organizations are managed.

Management: A Dynamic Force in a Changing

Industry

The hospitality industry, too, has had its managerial pioneers. Although we cannot, in the space allotted here, discuss them all, we will offer a brief description of the work of E. M. Statler and Vernon and Gordon Stouffer, and describe

the development of modern hospitality franchise systems as exemplified in the work of Howard Johnson, Harland Sanders, Ray Kroc, and Kemmons Wilson. The contribution of another conceptual pioneer, Sam Barshop, founder of La Quinta and inventor of the limited-service hotel, is detailed in Case History 15.1. These sketches will help demonstrate the impact of management ideas on the evolution of the hospitality industry.

STATLER: THE FIRST “NATIONAL” HOSPITALITY SYSTEM

Ideas, especially as textbooks present them, often appear neat and tidy. However, they are usually the result of complicated development. The central perception of Ellsworth M. Statler—that a national market existed for quality accommodations for the growing American middle class—probably evolved from his experience in serving that market as his hotel holdings grew from the original Buffalo Statler to a chain serving many of the nation’s major cities. After developing and operating two “temporary” hotels for the Pan American Exposition in Buffalo in 1901 and the world’s fair in St. Louis in 1904, Statler opened his first permanent hotel in Buffalo in 1908, where he had already made a name for himself with a successful, popular-priced restaurant. His hotel featured all the amenities of a luxury hotel, but both its plant and organization were designed for maximum efficiency. His slogan— “A room with a bath for a dollar and a half”—shook an industry that associated the luxury of a bath with high prices. Statler’s became the first popular-priced, full-service hotel. In the hotel business of that day, a substantial portion of the hotel rooms were plain rooms, that is, rooms without a bath. All of the popular-priced rooms were of this variety. Thus, “A room with a bath for a dollar and a half” represented a major social innovation.

As the size of the Statler organization grew, the company developed central staff services in control, architectural design, and personnel. Statler produced the first centralized corporate staff (as opposed to line management, a concept we will discuss in Chapter 17) in the hospitality industry. The enforcement of uniform standards in all Statler hotels provided a guest with the assurance of a familiar quality level wherever he or she went. Moreover, Statler was the first hotelier to perceive the power of the American middle-class market, and his was probably the first true hospitality chain, with common operating standards for all properties.

It would take a much longer discussion of Statler’s many contributions—includ- ing his important role as the first influential backer of hospitality education—to give full credit to this pioneer. Fortunately, such a discussion is available in a full-length book published by the Statler Foundation.3

STOUFFER’S MODERN MANAGEMENT TECHNIQUES

Vernon and Gordon Stouffer were sons of the owners of a successful family restaurant. In the early 1920s, they attended the Wharton School of Finance, where they studied the ideas of Frederick Taylor and the other management pioneers. As a result of that experience, the Stouffers introduced ideas that transformed the artisanand craft-based field of restaurateuring into the modern American restaurant industry. In short, the Stouffers adapted the thinking of Taylor and Fayol to the restaurant.

The Recipe Kitchen: A Controlled Shop. Their mother oversaw the original kitchen, but the Stouffer brothers could not build a chain on the skills of one person approaching retirement age. On the other hand, they did not want a chef, because (they argued) when you lose the chef and replace him or her, your food could change and your organization might fall apart. With this insight into the weaknesses of the craftbased kitchen, the Stouffers sought to achieve management control over the kitchen by developing a set of recipes that would produce a standard product. For many years, the Stouffers hired only women for work in the kitchen or pantry because (they argued) women were accustomed to following recipes, whereas men were inclined “to become chefs,” making things their own way and destroying the uniformity of product for which Stouffer’s ultimately became famous.

The food production supervisor and her assistants were called managers: They planned the work; organized that work around stations; staffed the kitchens with the right people, properly trained for the right job; and controlled food costs through yield checks and portion control devices. Finally, the food production manager, while leading and directing her crew, placed great emphasis on following the recipes and methods specified by management.

The introduction of the management-controlled recipe kitchen greatly improved productivity over the traditional kitchens of the day. Closer management control also ensured remarkably low food costs. The result was a highly competitive price. As Statler had done with hotels, the Stouffers brought the amenities of fine dining within reach of the American middle-class mass market.

Before the Stouffers, restaurant organization centered on the roles associated with traditional workstations; the relations among workers and between work groups reflected the old chef–maître d’–steward pecking order. The Stouffers, however, adopted a modern system of departmentalization. Reporting to the general manager were the executive assistant manager and his or her assistants, a director of service, and the dietitian (or food production manager). Although these formally prescribed relationships changed somewhat from time to time, Figure 15.1 is a reasonably accurate description of the way the typical Stouffer’s unit was arranged.

An organizational hierarchy, with the rigidity and symbolic trappings of an almost military organization, was developed—complete with titles of address (Mr., Miss, or Mrs. for supervisors and managers, first names for workers) and uniforms that clearly differentiated management from worker.

The Stouffers were in the area of personnel management as well. They offered fringe benefits such as paid vacations, paid holidays, and group insurance long before these practices became widespread. The Stouffers were among those who supported the pioneering work of William Foote Whyte, which finally took the form of his study Human Relations in the Restaurant Industry. Whyte looked specifically at

Figure 15.1

The Stouffer restaurant organization (circa 1960).

individual behavior and how employees related to one another in the restaurant environment.

Thus, the three kinds of ideas that constituted then—and still do now—the agenda of management thought had a profound effect in shaping the Stouffer organization: The controlled shop focused on the task, a rational organization design, and concern for the worker as an individual human being.

THE BUILDING OF COMPLEX HOSPITALITY SYSTEMS

Any discussion of management must also include the concept of how systems are organized. No one person can take credit for the development of hospitality systems, as these multiunit organizations evolved over a number of years. One of the key foundations on which these organizations are based, however, is franchising, and the pioneer in hospitality franchising was Howard Johnson. He began to build a franchise organization around a standard restaurant format in the 1920s. A generation or so later, Harland Sanders and Ray Kroc were the entrepreneurs most clearly associated with the development of franchised fast food. Kemmons Wilson made unique contributions to the development of modern lodging franchise systems.

Each of these people had an idea that solved a consumer problem. To make those ideas widely available, they needed to develop an operating system and an organization

that could finance its own expansion; this meant giving up the owner-hired management pattern on which hospitality organizations had been previously based. It meant developing a whole new basis for organization based on shared interests and acceptance of authority on a voluntary basis. That acceptance, in turn, was motivated by a desire to share in a unique idea, that is, to share in the knowledge of the central organization. Moreover, the franchisee shared in the power of a large organization in marketing, purchasing, and operating system design. Much of that power related to the collective knowledge of the franchising organization. Finally, each of these men created a powerful consumer acceptance for his product and service that outlived its initial corporate organization and its founder.4

Howard Johnson. In the 1920s, as automobile ownership became more common and people began to travel more, travelers confronted the problem of finding a safe, reliable place to eat. Howard Johnson, whose initial success was in manufacturing ice cream, hit upon the idea of a restaurant with a standard appearance and menu and quality standards that would be immediately recognizable to travelers. Anyone who has ever driven into a strange town and wondered where to eat without risking food poisoning will know how critical Johnson’s idea was to travelers of that day. Although his idea was excellent, Johnson did not have the funds to expand his operation. He decided to franchise his operating system to others, following the method of expansion first pioneered by Singer Sewing Machines and used very successfully in Johnson’s time by soft-drink companies and automobile manufacturers to achieve rapid expansion in a growing national marketplace.

At one point, Howard Johnson’s was the largest restaurant “chain” in the United States. We put “chain” in quotes here because until that time, as in Statler’s day, the word implied common ownership. Johnson’s restaurants were owned by many local operators (and investors), all of whom followed the same pattern in menu, decor, and operating procedure, not because of the legal force of common ownership but because of their compelling common interest.

Harland Sanders: Kentucky Fried Chicken. Harland Sanders operated a very successful restaurant that was bypassed by a new highway. He needed a new idea to regain his customers’ patronage, so he developed a method of frying chicken quickly under pressure. This method permitted frequent small-batch cooking to ensure freshness and flavor. He also developed a batter that was flavored by a “secret recipe of herbs and spices.” (This recipe, although changed a number of times since, is still secret.) Finally, he coined the phrase “finger lickin’ good” to describe his Kentucky Fried Chicken. His slogan caught people’s fancy. Customers came flocking back to his store, but he could make only limited use of his combination of operating idea, equipment

into his growing organization of franchisees. Most of the newer products, such as the Egg McMuffin and the Big Mac, were ideas initially developed by franchisees. Moreover, Kroc built an organization that was at once uniform and yet flexible enough to change with its markets and respond to competitive pressure.

McDonald’s did not build its early success on advertising, but as fast food became more competitive in the 1970s, Kroc oversaw the development of the awesome advertising muscle that has made McDonald’s a household word around the world. The campuslike headquarters in Oak Park, Illinois, resembles nothing so much as the Versailles of Louis XIV. There, not only does the job of governance of this vast, largely voluntary (i.e., franchise) organization get accomplished, but visitors are awed by the massiveness of the resources and the restrained splendor of the setting. One of the authors, during a visit to McDonald’s headquarters, watched two new franchisees, one from Southeast Asia and the other from Germany, arriving at these headquarters. They were so visibly impressed that any idea they might have had that this “hamburger stand” company was anything other than all-competent was quickly banished. Hamburger University, a training school, is one of the major tools that the organization Kroc built uses to secure uniformity in product, commitment in operation, and enthusiasm in management. Detailed training rather than strict discipline is the cement of the McDonald’s organization. It is, ultimately, knowledge rather than discipline that holds the organization together.

Kemmons Wilson: Holiday Inns. Kemmons Wilson, with his close associate Wallace Johnson, applied the idea of franchising to the lodging industry in the early 1950s in a way that swiftly built a national organization that set the pace for change in the lodging industry for 20 years. Seeing a need based on his own travels on business and with his family, Wilson developed a motor hotel, Holiday Inn, that met the needs of both businesspeople and vacationing families. The organizational needs for a reservation system, a well-known brand name, and standardized services were successfully surmounted, and his Holiday Inns became a popular favorite. It was this consumer preference that made Holiday Inns first a major and then the dominant force in the lodging industry of the 1950s, 1960s, and 1970s. The rapid expansion of his idea was possible because of Wilson’s success in enlisting ownership financing through many local investors in local projects—and these local people were usually able to find local mortgage money to complete the capital needs of the new Holiday Inns. Once again, a successful idea that solved consumer problems was expanded through the power of mutual self-interest, through a network of franchisees who conformed to the system because of their own self-interest. (The development of another lodging innovation, the limited-service midscale hotel, is discussed in Case History 15.1.)

CASE HISTORY 15.1

Where Does a Concept Come From?

One of the most significant innovations in the lodging business in the last half of the twentieth century has been the development of the midscale limited-service hotel, a concept that includes first-class guest rooms but very few of the other services of the full-service hotel. The man who first developed this concept is Sam Barshop, the founder of La Quinta Inns (www.laquinta.com).

The interesting thing about the development of this concept is that it is a good example of learning from experience. The successful development of La Quinta was certainly no accident—but it was also not a blinding flash of inspiration.

Sam Barshop and his brother Philip began building and leasing Ramada Inns in the early 1960s and then switched to a new franchisor, Rodeway Inns.1 As Barshop Enterprises, they obtained the exclusive franchise from Rodeway for the states of Texas, Oklahoma, Kansas, and Arkansas. Between 1961 and 1968, they built 20 Rodeway Inns.

The 1968 world’s fair, HemisFair ‘68, was sited in San Antonio, and Sam and Philip decided to build two properties there to accommodate visitors to the fair.2 With their experience with Ramada and Rodeway under their belts, they tried to buy out their franchisor. That proved not to be possible, and so La Quinta was born. They chose the name La Quinta—which means “country place”—to match the Spanish motif of the buildings. No one had any notion of building a chain of La Quintas. To quote Sam Barshop, “We were going to build two motels in San Antonio and that would be that.”3 Early success, however, was an important learning experience, and the chain began to take form.

One of the basics of the La Quinta concept—and the limited-service concept in general—was to avoid the operational headaches and costs of a restaurant operation. But the first five La Quintas did have restaurants, which Sam and Phil later characterized as “the biggest mistake we ever made.” They learned from that mistake, however, and the La Quinta operating concept soon included a freestanding leased restaurant operated by a successful franchise company such as Denny’s, Cracker Barrel, or Shoney’s.

The common elements that these pioneers share form the basis not only of the organizations that still bear their names but also of the many other organizations that have learned the lessons their success taught. One significant cornerstone is the largely voluntary nature of these organizations. While not all hospitality chains today are franchised, the power of multiunit systems was first demonstrated by franchise organizations, and the dominant forces in mass-market hospitality today generally involve a significant proportion of franchised units.

Franchise organizations multiply the center of authority rather than concentrating it. Because the owner is generally closely involved with the unit, a number of advantages are secured. First, the owner’s capital and credit are used to secure financing. Each franchised operation is a manageable small-business investment; however, in the

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Another important element of the concept was value. A critical aspect of that value was price, which was set at 20 to 25 percent below that of the competition. Eliminating the capital and operating costs of a restaurant made that room rate possible. The other aspect of the La Quinta value was quality. La Quinta provided a room that had all the features, quality, and cleanliness of the industry standard of the time, Holiday Inns. La Quinta targeted the business traveler, and one measure of its success was that 65 percent of its customers were businesspeople, a large proportion of them repeat customers. Inns were located so that they had easy access to the interstate highway system, airports, and business destinations such as office complexes, industrial parks, medical centers, and universities, yet were outside the downtown core, where real-estate prices were too costly for their rate structure.

Barshop described the La Quinta concept in this way: “Try not to make things too complicated. You can’t be everything to everybody. We’ve got a simple concept, and we’re going to cookie cut, and cookie cut, and cookie cut, until there aren’t any more cookies left to cut.”4

As we all know now, the cookie-cutter formula was one others could copy, but for about 15 years, La Quinta had its concept to itself. Then, along came Hampton Inns, Fairfield Inns, and a number of other similar concepts. In time, too, came other investors, proxy fights, and Barshop’s eventual retirement.5 The fact of Barshop’s innovation, however, is that it changed the face of lodging.

1.The following discussion is based, except as noted, on articles from the June 1988 anniversary issue of Innput, a monthly publication for the employees of La Quinta Motor Inns. We would like to acknowledge our indebtedness to Mary Starling, secretary to Sam Barshop, in preparing this case history.

2.Philip Barshop left La Quinta in 1977 to run the family real-estate business.

3.Christopher H. Lovelock, “La Quinta Motor Inns,” Management Case Study, Harvard Business School, 1980, p. 1.

4.Ibid., p. 6.

5.For a discussion of the takeover of La Quinta, see Case History 11.1.

aggregate, they create a huge capital plant that spreads into every attractive location across the continent and eventually around the world. The national organization they build is one with local roots, tying local needs to a national program and vice versa.

The management within a franchised unit is not much different from that in any other hospitality unit. Above the unit level, however, the functioning of the organization is quite different. It is the owner’s self-interest and the franchising corporation’s knowledge that are the cement of the organization, rather than the legal force of central ownership. Franchise systems are really a means for the dissemination of ideas. The voluntary joining together of these organizations also secures for each of the participants economies of scale in research, development, purchasing, and, most significantly, marketing.

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